TORONTO (Reuters) - The Canadian dollar dipped against its U.S. counterpart on Wednesday as U.S. crude oil prices fell and Federal Reserve Chair Janet Yellen left the door open to further interest rate hikes.
Yellen cited global risks in her prepared testimony to Congress, but said she expects moderate growth that will allow the U.S. central bank to pursue “gradual” adjustments to monetary policy.
The yield on 10-year Canadian government bonds dipped below 1 percent for the first time ever as economic uncertainty swirled.
The Canadian dollar CAD=D4 ended the session trading at C$1.3933 to the greenback, or 71.77 U.S. cents, weaker than the Bank of Canada’s official close on Tuesday of C$1.3879, or 72.05 U.S. cents.
It has weakened from C$1.38 at the start of the year to almost C$1.47 on Jan. 20 before returning to the C$1.38-C$1.40 range in recent days.
“The story is global dislocation and uncertainty,” said Darcy Browne, managing director for foreign exchange sales at CIBC Capital Markets. “There’s really no meaningful direction short term.”
He said the reversal in dollar/Canada in recent weeks suggested the push to a 12-1/2-year low may have been overdone, while volatility is likely being exacerbated by some major market participants standing back to see where things settle.
Stock markets have sagged given uncertainty surrounding monetary policy and a steep decline in commodity prices, while corporate results and economic data offer little comfort.
U.S. crude prices fell 2 percent on Wednesday after stockpiles at the main U.S. delivery point hit record highs, while Brent rose for the first time in five days after Russia suggested oil producers cut output by a million barrels each. [O/R]
Canada’s new Liberal government is set to unveil its first budget in the week of March 21, two sources with knowledge of the process said on Tuesday. The Liberals have pledged major new spending aimed at boosting a flagging economy.
Canadian government bond prices were mixed across the maturity curve, with the two-year CA2YT=RR price down 1.5 Canadian cents to yield 0.36 percent and the benchmark 10-year CA10YT=RR adding 45 Canadian cents to yield 0.999 percent, a fresh record low as investors flock to safety.
The yield curve flattened, with the spread between the 2-year and 10-year yields narrowing by 5.5 basis points to 63.9 basis points. The Canada-U.S. two-year bond spread was 1 basis points less negative at -34.4 basis points.
Additional reporting by Fergal Smith; Editing by Paul Simao and Meredith Mazzilli